Lock a group of law firm owners in a room and eventually the conversation will turn to the subject of motivating associates.
You see, law firm owners are usually motivated by money. That’s a piece of what drives us.
We assume, often erroneously, that other lawyers think the same way. This assumption impacts how we manage our employee-associates. We believe we can encourage certain behaviors if we create opportunities for our associates to earn more money.
So we come up with creative plans to pay associates in a way that encourages them to make positive impacts on the business. We try to devise the perfect environment for mutual success.
Typically, these plans are intended to make the team more productive, make clients happier, or generate new business. Instead of a flat salary, they involve some type of payment system that rewards the behaviors we desire.
Sometimes these incentive-based approaches work. But in most cases, they work a little, but not as much as we hope.
It rarely works at first
Once the incentive-based system is up and running, we start changing it. This happens when we realize that the behavior we desire isn’t the behavior we’re getting. Sometimes we also get surprised by nasty, unintended consequences.
The problem with getting it right the first time, and having it last for a long time, is people. People aren’t all motivated the same way, they don’t see the world the same way, and they don’t all want the same things.
Everybody is different, even about money
Since the owner, the associate, and the other associates all have different perspectives, creating a compensation system for everyone is complicated. The system is never exactly right. Whenever it gets close to being right, some key variable changes, screwing the whole thing up. It’s always a work in progress.
My guess is that you’ve already tried to optimize your system. I have too. If there’s a perfect system, I haven’t discovered it yet.
But I have a bunch of ideas for you to consider as you develop, refine, and revise your approach. These will help you create a system which will hopefully last a while.
1. Not everyone cares
Here in the real world, shockingly, not everyone is motivated by money. As a business owner, I struggle with that reality. But it’s true. Some people care about stuff like quality of life, or intellectual stimulation, or making a difference in the world. Baffling, but you’d better appreciate that others are different or you’re going to have great difficulty managing people.
If you want people who are motivated by money, then hire for it. Figure out how to pick those folks out of the crowd and put them to work. If you find yourself getting lots of questions about “base salary,” then you’re not talking to the right applicants. Money-motivated lawyers want to take on more risk (they’re more like you and me).
Be cognizant of the differences between associates. Incentive systems are exciting to some, terrifying to others, and of little significance to many. Hiring the kind of folks who appreciate (and will thrive under) incentive plans is the key. Attempting to modify an existing system with current employees is likely to upset the delicate balance. I've written about how to make the shift from salary to an incentive system, but changes to compensation invariably result in some folks leaving. If you’re going to attempt the transition, expect some turbulence.
2. Keep it simple and quick
Whatever system you adopt needs to be simple. The simpler, the better.
Think “pull the lever, get a pellet of food” simple. If you put more distance between the desired behavior and the reward, you reduce the likelihood of the reward driving the behavior. We’re not monkeys, but we’re close.
At my firm, we started with bonus percentages at different revenue levels. That was too complex and didn’t impact behavior.
We shifted to a base and added a bonus when a certain target was achieved. That was too complex and didn’t impact behavior.
At one time, we factored our client survey scores into the compensation system. That was too complex and didn’t impact behavior.
You get the idea. Keep it simple. Really, really simple. If you have to breathe as you explain it then it's too complicated. Explain it in less than 10 words.
And pay quickly. Don't make people wait. Show them the money!
We tried paying annual bonuses. That didn't work. We shifted to quarterly bonuses with part paid monthly. That wasn't much better. At one point, we paid part of the incentive immediately, and the balance at the end of the year. We've now shifted to paying the incentive two weeks after the close of the month. It's better.
If we could pay people instantly with handfuls of cash, we'd do it. Quick, simple rewards impact behavior. In a perfect world, you’d pull the lever and get your reward. I’d love to be able to pay a lawyer right now for the work they finished a moment ago. The more easily humans connect the reward to the effort, the more likely they are to repeat the effort. Remember, the goal is to make the behavior happen more often.
3. You can't go backward
Lots of law firms start off with a system that overpays associates. When that happens, the law firm ends up with no profits. That's not good even if the firm has lots of highly motivated associates. Profit is essential.
When you start too high, you're screwed. There is little chance that the existing associates are going to stick around when you cut the plan. They're going to be insulted, feel abused, and quickly decide that you're not to be trusted.
Clearly, your system is going to require some tweaking. It will go through many iterations before you get it right. Start low, because you can't go down without losing the associates.
One law firm I met recently had a compensation plan that involved paying the associates forty percent of the revenue they generate. We're trying to tweak the system, but I'm pushing them to start hiring new associates under a reduced commission system because I'm pretty confident we're going to lose all of the associates who started on the higher plan. It's going to get uglier before it gets better. Turnover is difficult and upset employees and clients are hard to avoid. You can't go backward, so don't start high.
4. Settle disputes easily
When money is on the line and lawyers are involved, you can expect conflict. You’ll face arguments about whether the associate originated the client, or which associate should get credit for a particular client, or whether the work is attributable to the associate, the paralegal or the law firm owner.
No matter how carefully you design your plan, something will lack clarity. There will be miscommunications, upsets, and debates about the meaning of provisions.
Origination bonuses are the source of the greatest upset. I guarantee you'll end up in a really, really ugly dispute if you fail to detail with amazing specificity the requirements for determining who originated each client. These arguments are factually challenging and emotionally fraught. They can create personnel departures.
When these disputes arise, pay the person what they want unless you’re ready to part ways. When two associates are arguing about who gets credit for a fee, just pay them both. Pay it joyfully and thank them for identifying a glitch in your system. Then edit the language so the same issue doesn't happen again.
5. The best games involve multiple players
When you only have one associate working under your incentive-based system, it’s easy for them to blame you and your system for their failure to earn. And truthfully, they might be right. Without more data, it’s unclear whether the problem is the system or the associate.
So incentive systems work best when there is more than one player.
In fact, hold off on an incentive system until you have the work to warrant adding a second associate. Get two players in the game so you can measure the effectiveness of the system.
6. Maintain control
These systems can take on a life of their own when you have a highly motivated associate. Money is on the line and the money-motivated associate wants more of it. There are rules for the game, of course, but you’ve stoked the engine of someone who loves finding loopholes, weaknesses, and opportunities.
In a weird way, the associate who manipulates the system is your most valuable asset. But reeling them in may prove challenging – and costly.
Monitor and control the types of cases accepted by the motivated associate. The incentivized associate may want to accept sub-optimal clients and cases. Be careful to keep the practice consistent with your vision. Pay attention to the types of matters your associates accept. Monitor the geographic boundaries you’ve established. A highly motivated associate will find all sorts of ways to stretch the rules.
When drafting a compensation plan be careful to reserve the right to reject matters, change the plan, and veto the decision of the associate. You may not realize what’s coming until it’s already happening. The aggressive associate can be a gold mine, but they can also drive you a little crazy with efforts to challenge your systems.
Stick to the vision. It’s easy for incentive systems to change the direction of the firm. When that happens, go back to your written vision statement and decide whether the decisions being made are steering you closer to the objective.
7. There will be streaks
Incentive systems drive certain lawyers to excel. But even those lawyers will have peaks and valleys. They’ll have hot streaks for a while and then sometimes run cold.
The slow periods may be a reflection of the market, seasonality or, more likely, something happening with the associate. Even the most driven lawyers will experience shifting moods that impact their effectiveness. Don’t assume the system is broken when one associate experiences a decline.
Don’t be afraid to offer help when a formerly productive associate enters one of these periods. Encouragement helps, but sometimes all it takes is time. Don’t panic and change the system because of a couple of down months.
If, however, the entire team is down, that’s an indicator of something systemic. When everyone has a bad couple of months, it's time to explore other variables that may be impacting revenues.
8. Don’t bail them out
There will be times when the system results in someone earning very little for a month (or several). You’ll be tempted to step in and fix the problem by paying them something they didn’t earn. You’ll worry that the associate will leave if they don’t get paid, and soon.
Don’t do this. Don’t jump in and pay the person. You’ll be tempted, but don’t.
These systems are harsh sometimes. They force you to determine what matters and what doesn’t for the success of the business because you've got to translate those values into numbers.
The income of each individual accurately reflects their value and contribution. Incentive based compensation systems force you to run the business by the numbers. That becomes especially challenging when an associate you like fails to hit their targets. Don't bail them out. Be guided by the numbers and let the chips fall where they may.
9. Contemplate the culture
Part of me loves incentives. But they create a fairly aggressive, what’s-in-it-for-me culture.
If that’s what you want, then you’ll be happy. If, however, you’re striving to build something different, you'll likely be distressed when you end up with that what’s-in-it-for-me culture.
Look, no matter how much you preach cooperation, community, and family, your team hears the money loud and clear. An eat-what-you-kill-compensation system creates a killer culture.
Incentive systems are one approach to growing the bottom line, but they're not the only approach. You’d better be prepared to live with a team of killers if you choose to go with an aggressive model.
When you introduce incentives, it’s reasonable to expect your team to do what’s incentivized. Don’t expect your lawyers to train junior lawyers, contribute to firm-wide marketing efforts, help with documenting systems, or do anything else that isn’t incentivized.
Be prepared to handle those issues alone while your associates get busy doing what you pay for.
10. Money won’t be enough
Those of us who adopt incentive systems see the world through a money-motivated lens. When an associate is winning under the system, we believe they should be happy. They’re making bank, so we assume they go home and celebrate.
But the money won’t be enough.
They will want more. They always want more.
They want caring and concern from you. They want respect. They want input. They want to feel like they matter.
Don’t assume that an associate who makes big bucks under your compensation system will be happy. They’ll still have a broad agenda of other needs that need to be addressed. You're not off the hook because you're paying out incentives. You've still got to manage your team.
Money gets complicated
I may, by now, have scared you off from implementing an incentive system. There are lots of different ways to compensate people and there is endless debate about what's best.
Incentive systems aren't for every law firm. You've got to consult your vision, your values, and your priorities. There are no simple answers when it comes to driving human behavior. We each want different things from our firms.
But many of us are determined to adopt some sort of incentive system. If that's your approach, hopefully my input will move you quickly to a system that works.